cafeteria-style insurance plan

First, i would point out that that is a badly written sentence (the quoted sentence). Your use of "either" in your question is inappropriate, too.

A cafeteria plan is a specific reference to a provision of the income tax codes in the United States. It is called a cafeteria plan because employees are able to choose between various benefit plans, just as a customer in a cafeteria is able to choose between the various dishes offered for sale. Cafeteria plans are most often used as a means by which employers can provide benefits in lieu of salary (which means that the employee is offered less money, but gains a benefit which does not constitute taxable income). Cafeteria plans frequently allow employees to "bank" or save money offered in a benefit plan so that they can apply it to health insurance needs. So, if i offer you $1000 a year in general health insurance benefits, under a cafeteria plan, you can choose how to spend the money, you will not have to pay income tax on it, and you are allowed to let the money accumulate over a certain period of time so that larger amounts are available when you need money to pay your health care costs.

Cafeteria plans are used by small businesses to provide benefits in lieu of salary, in a situation in which they might not otherwise be able to offer the benefits. Cafeteria plans are used by large business to avoid the costs of administering complicated benefits plans, offering the employee a non-taxable form of income, and leaving the decision about how it will be applied as a benefit to the employee.

The Internal Revenue Service of the United States government has very specific rules about how a cafeteria plan can be set up, and how it can be used by the employee. I happen to know this because i have been a business manager for small businesses for many years.

I have gone through it.That was a good information.

What are the plans which comes under Cafeteria plan bucket ?

You have already mentioned Health Insurance . what else ?

You know the name 'Cafeteria' is bit misnomer . ...looks like it should be something related to Coffee , Restaurant etc.

I can't see an 'either' in any of Tintin's text.

A cafeteria is a type of restaurant where all of the food is kept along a counter. Customers walk along the counter with a tray and pick and choose which individual dishes they want to eat (and then they pay after selecting).



So, a cafeteria plan, would be where you could pick and choose the things you want (instead of getting a pre-packaged "meal").

Cafeteria plans can be used for certain types of individual pension investment plans (such as a Roth IRA), but those are very restricted--at the time i investigated these for my last employer, the IRS had a very short list. They are also used for medical and dental "savings accounts," as i mentioned. Many employers in the United States do not provide dental care, or provide very little in the way of dental care, so cafeteria plans are very popular for that purpose. By the same token, many health care plans do not provide prescription medicine coverage, or have a very high co-pay (the amount a certificate holder has to pay before the insurance pays), and employees often use cafeteria plan benefits to pay that portion of the prescription cost. They can also be used to set up temporary disability accounts (you are injured, but not permanently, but need income while you are unable to work). In my experience, an accountant or tax adviser is going to recommend an annual enrollment for any cafeteria plan payments, or for changing the use of the cafeteria plan funds. That means the employee will have to choose how they intend to use that money, and if they change their mind the following year, the funds from the previous year can only go to the purpose chosen then, and new cafeteria plan funds can only be used for the purpose the employee has elected to change to. So, if you dedicated your funds to a medical savings account last year, but now expect that you or one of your dependents will have high prescription medicine costs this year, the funds from last year can only be spent to pay medical costs other than prescription drugs, and the funds from this year cannot be spent on anything other than prescription drugs. This sort of provision is the only way the IRS can assure that employees are not simply using the funds as a means of getting tax-free income. I don't recall the details, but if you don't use your medical savings plan funds within a certain period of time, you lose them.

Cafeteria is not a misnomer, it is just a figurative use of the word. As is the case in a cafeteria, you have several options to choose from.

By the way, i reread your opening post, and realized that you wrote "earlier" and not "either" in that question. You might better have written: I have never heard this kind of plan before.

By the way, it has been several years since i have investigated cafeteria plans. You should do some research if you need to know details, since the specific information i am giving you is about seven or eight years old. My employer at that time asked me to investigate cafeteria plans, and present the information at the annual meeting when employees could elect to change their pension plan coverage. I did so, and presented the information to the employees. My employer was very honest, and told the employees that using a cafeteria plan would reduce the amount of performance bonuses. The employees voted not to set up a cafeteria plan. The preferred to have the case from performance bonuses. We only had one employee who had young children (high medical costs even when they are healthy) and they were covered under his former wife's insurance. All of the other employees were either unmarried, or had not children. We all opted to stay with the insurance plan we were being offered. It was a standard 80-20 plan (the insurance company pays 80%, and the certificate holder--the employee--pays 20%), with very high deductibles (the amount the employee has to pay before the insurance company pays) and very high co-pays (the amount you have to pay before the insurance company pays for your prescription drugs). It was more attractive to the employees, though, because our employer paid 100% of the premium costs, and an insurance plan which paid more, with the option of a cafeteria plan would have required the employees to pay a portion of the premium, and lose a portion of their performance bonuses to pay for the medical savings account. Our employer was very honest and open. The employees asked me outright which option i considered was best for their interests, and i said no cafeteria plan and continue the more expensive insurance plan, with our employer paying 100% of the premiums--and that's what they voted for. Our monthly health insurance premiums were then running about $5,800 for a small company, but the employer was willing to pay that in order to retain good employees. He was smart enough to know that you have to spend money to make money.

[tongue in cheek, gently nods head]


You might better have written: I have never heard this kind of plan before.[/quote]

I think an 'of' is warranted;

I have never heard of this kind of plan before.

or,

I have never heard this kind of plan described before.

Thanks ... got to know lots of unknown facts!